Magazine

Commentary: How Korea Has Changed and How It Hasn't

August 24, 2003

By Moon Ihlwan

When a worker sweeping the garden of Hyundai Group headquarters found Chung Mong Hun's body on an early August morning, he could not believe he had come upon the corpse of one of the nation's most influential tycoons. But for Hyundai Group chief Chung, 54, who had leaped from his office window, death was the only escape from a huge scandal involving $500 million in payments that Hyundai funneled to Pyongyang in exchange for Kim Jong Il's participation in a summit with then-President Kim Dae Jung. Chung admitted in court to violating foreign exchange laws in sending the money to North Korea and using false accounting to cover things up. Ex-President Kim Dae Jung, meanwhile, denies any wrongdoing.

Chung's death underlines how much Korea has changed -- and how much it hasn't. The Chung prosecution is the latest clash between an emboldened judiciary and the chaebol. Determined to rein in the big companies and end the era of dirty politics, prosecutors have taken on the chairman of Daewoo, the boss of SK Group, and now the remnants of mighty Hyundai. A decade ago, this would have been unthinkable.

A huge change, indeed. Yet Chung's death shows just how dangerously entangled the chaebol remain with affairs of state. Seoul relied on a corporate heir to reach Kim Jong Il even though Chung had his own, private agenda of expanding the Hyundai presence in the North. That's astounding -- and shows how primitive some aspects of Seoul's North Korean policy are.

It's the stuff of high drama, and it's appropriate that it centers on the Chung clan. Chung Ju Yung, Mong Hun's father, epitomized the nation's miraculous rise from the ashes of war. The elder Chung built an empire based on relentless energy and commercial savvy: He landed a shipbuilding contract, for example, even before he built his shipyard. But he also relied on political connections to support his debt-fueled diversification into cars, ships, computer chips, and department stores. Born in what is now North Korea, the senior Chung also saw the North as the next part of Hyundai's expansion.

Along the way, Hyundai changed with Korea. The sprawling chaebol could not sustain all of its divisions. More important, the sons could not maintain the unity their late father long enforced. In 2000, a year before their father died, Chung Mong Hun and his elder brother, Mong Koo, chairman of Hyundai Motor Co., publicly attacked each other over who would take control of the group. The feud coincided with a liquidity crunch at the construction and shipping units -- the businesses that bankrolled Hyundai's risky new ventures in the North after the 1997-98 Asian crisis.

The feud triggered a rebirth of sorts. By September, 2000, Hyundai Motor -- controlled by the elder brother -- formally severed links to the rest of Hyundai. Freed from the debt-besotted chaebol, Hyundai Motor emerged as a dynamic, profitable company. Another moneymaking piece of the group, Hyundai Heavy Industries Co., the world's largest shipbuilder, controlled by the sixth brother, Mong Joon, became independent, too: Analysts expect it to turn a big profit this year. "The breakup was a blessing for the country," says Min Sang Kee, a business administration professor at Seoul National University.

Yet in the process, Chung Mong Hun, a shy man who was long his father's favorite, got stuck in another era. To preserve his father's legacy, he poured more than $1 billion into projects in North Korea, even though he knew they would not generate profits for years. The plan brought some benefits, since it ensured support from the government of Kim Dae Jung, who had a "sunshine" policy of reconciliation. "Several Hyundai companies would have collapsed if they were treated in the same way as Daewoo," argues Lee Hahn Koo, a member of Parliament from the opposition Grand National Party. Kim's office denied any intervention. But, believing they could protect their investments by granting fresh credits, local banks -- some state-owned -- extended billions to prop up Hyundai Engineering & Construction and Hynix Semiconductor (formerly Hyundai Electronics Industries).

Chung Mong Hun thought these flagships of his group were just having a short-term liquidity crisis. But they eventually ended up in the hands of creditors -- another blow to the old system. And now, Chung Mong Hun is dead, a victim too of the old ways that Korea must relinquish, in politics and business. Seoul bureau chief Moon covers Korean business and politics.